Late-night Senate vote protects banks over consumers

In front of the cameras recently, the talking heads in Washington sure sounded tough as they challenged Equifax and Wells Fargo executives for their companies' inexcusable actions that harmed millions of people. But the politicians showed their true colors late Tuesday night by voting for Wall Street over consumers.

While many of us were watching the World Series, putting the kids to bed or working the night shift, the Senate killed one of our most effective ways to hold the financial industry accountable for its mistakes and fraud — the class-action lawsuit.

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The Senate threw out a rule that in 2018 would have prohibited banks, credit-card issuers, student lenders, payday lenders, debt collectors and credit agencies from blocking class actions through terms in the fine print of their customer agreements. Many financial businesses impose terms requiring disputes to be resolved in arbitration, meaning customers cannot participate in class-action suits.

The Consumer Financial Protection Bureau issued a rule earlier this year that would have banned such terms and opened the door to the courtroom. The Senate vote Tuesday night to overturn that rule seals its fate, as the House previously also voted to overturn it, and there is no chance President Donald Trump will veto the legislation, given his campaign promise to reduce regulations on banks.

Senators deadlocked 50-50 Tuesday and Vice President Mike Pence cast the deciding vote to carry out the administration's wishes. All but two Republicans voted to kill the rule. All Democrats and independents voted to keep it.

Democratic Pennsylvania Sen. Bob Casey said in a statement Wednesday that "Senate Republicans have once again shown they are more concerned with the needs and wants of big corporations even if it means selling out the middle class."

Wells Fargo, citing the arbitration requirement in its account terms, initially tried to block class-action lawsuits filed by customers angry over the opening of an estimated 3.5 million in unauthorized accounts by employees trying to meet sales goals to earn bonuses. The bank backed down amid the public backlash and settled the lawsuits.

Equifax included arbitration in the terms that consumers had to agree to if they wanted to enroll in the free credit monitoring and protection program it offered after its security failure potentially exposed the information of about 145 million people. Equifax removed those terms after criticism.

Tuesday's Senate vote "serves Wells Fargo, Equifax and other corporate wrongdoers well," said Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group.

"Reckless Wall Street chiefs and predatory payday lenders have now won a congressional green light to pick consumer pockets with unfair and deceptive fees and practices," Mierzwinski said in a statement. "It is now U.S. policy to keep victims of financial wrongdoing from the courthouse doors."

Not everyone sees it that way.

The American Bankers Association, the U.S. Chamber of Commerce and the White House said the rule would have harmed consumers, not helped them. They said the arbitration system has worked well and the biggest beneficiaries of class-action lawsuits would be attorneys.

Republican Pennsylvania Sen. Pat Toomey agrees. "The CFPB's ill-conceived rule was yet another government-sponsored bonanza for trial lawyers at the expense of consumers seeking a speedy and fair resolution of their disputes," he said in a statement Wednesday.

He cited an analysis from the Office of the Comptroller of the Currency, which concluded the rule likely would increase the cost of credit cards by several percentage points. And he pointed to a Treasury Department report issued Monday — coincidentally on the eve of the vote — which said the rule would have resulted in extraordinary costs to the financial industry that would have been passed on to consumers. The report, citing CFPB statistics, estimated there would have been more than 3,000 additional class-action lawsuits over the next five years, imposing more than $500 million in additional legal defense fees. It said only 13 percent of class-action lawsuits result in broad relief for consumers.

"By repealing this rule, Congress is standing up for everyday consumers and community banks and credit unions, instead of the trial lawyers, who would have benefited the most from the CFPB's uninformed and ineffective policy," the White House said in a statement.

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Republican lawmakers said payouts in arbitration cases generally are much larger and occur much more quickly compared to awards from class-action lawsuits.

This doesn't mean you can't sue financial companies. Account terms often permit lawsuits to be filed by individuals in small claims court, according to a CFPB study from a few years ago. In Pennsylvania, small claims lawsuits may seek up to $12,000 in damages.

But many consumers can't afford to hire an attorney to pursue their case. Even if they do and they win, the outcome isn't always as effective. Class-action lawsuits often result in changes to a company's practices that are designed to prevent a problem from reoccurring.

Richard Cordray, director of the CFPB, said Tuesday's vote overturning the anti-arbitration rule was "a giant setback for every consumer in this country." He urged Trump to veto the legislation.

"Wall Street won and ordinary people lost," Cordray said in a statement. "It preserves a two-tiered justice system where banks can have their day in court but deny their customers the same right. It robs consumers of their most effective legal tool against corporate wrongdoing. As a result, companies like Wells Fargo and Equifax remain free to break the law without fear of legal blowback from their customers."

When you're opening a new financial account, read the fine print to see if you would be forced to use arbitration if there is a dispute. If there is an arbitration clause, ask if you can opt out of it. If the requirement discourages you, shop around to see if you can find a company that doesn't require it, though I suspect those terms will be the norm now that Congress has blessed them.